By Vijay Choksi, Cameron Baker, and Eric C. Bielefeldt, of Fox Rothschild LLP
The legalization of cannabis in states throughout the U.S. has many businesses reevaluating their stance on its use by their employees, and professional sports leagues are not immune to this shift. Nowhere is this more evident than with the National Basketball Association (NBA), which has emerged as a frontrunner in this evolution, shattering the glass by agreeing to a new collective bargaining agreement (CBA) with the National Basketball Players Association which removes marijuana from the Prohibited Substances List for NBA players. This progressive change not only signifies a significant shift in attitudes towards cannabis but also presents lucrative opportunities for players to explore partnerships, investments, endorsements, and sponsorships within the cannabis industry. This article delves into these exciting prospects by highlighting the size and growth of the cannabis market and new opportunities as a result of the CBA, while also providing guidance on potential pitfalls associated with entering the cannabis space.
High Flying Market Growth
The cannabis market has already witnessed tremendous growth, which is expected to continue over the next 5 years. The following chart compares the cannabis market to two markets that NBA players are familiar with: basketball shoes and sports drinks.
| Market | Market Size (2022) | Market Size (2028) | Compound Annual Growth Rate (CAGR) |
| Cannabis | $16.7 billion | $64.9 billion | 25.4% |
| Basketball Shoes | $5.31 billion | $6.52 billion | 3.65% |
| Sports Drinks | $24.44 billion | $32.61 billion | 4.92% |
With the new CBA, NBA players can be “first movers” in an already sizeable market that is also projected to grow quickly. NBA players have immediate opportunities to carve out a space in an industry that is less crowded than typical markets NBA players endorse. However, the major upside lies in the expected growth of the cannabis market, with an expected year over year growth that is 5x that of the basketball shoe market and the sports drink market. This growth would result in the cannabis market being approximately 2x the size of the sports drink market and approximately 10x the size of the basketball shoe market.
Taking Advantage of New Opportunities:
1. Branding and Endorsements: The CBA now allows players to endorse cannabidiol (CBD) companies. Players can now align themselves with reputable cannabis companies and endorse a range of products and services, expanding their personal brands well beyond basketball. These endorsements can involve substantial financial compensation, equity stakes, or revenue-sharing agreements. By affiliating with a reputable cannabis brand, players can showcase their entrepreneurial spirit, business acumen, and interests outside of sports.
2. Life After Basketball: In addition to endorsement opportunities, the CBA also allows players to invest in cannabis enterprises. While NBA players enjoy a financially rewarding career, the average career span is relatively short. The CBA now provides players with an avenue to explore and set up cannabis related income opportunities post-retirement. Similar to former NBA players who have ventured into other industries like food, drink, fashion, music, and entertainment, the cannabis industry now presents itself as a viable option. For example, Kobe Bryant’s initial $6 million dollar investment in BodyArmor resulted in an estimated payout of roughly $400 million when BodyArmour was acquired by Coca-Cola. By leveraging their fame and capital, players can build successful cannabis-related businesses in various aspects of the industry, including cultivation, product development, distribution, or retail. The cannabis industry’s rapid growth and evolving legal landscape make it an attractive space for players to explore, providing a fulfilling and potentially lucrative second act after retirement.
Don’t Step Out of Bounds:
While the NBA’s policy shift presents exciting opportunities, players must tread carefully to avoid potential pitfalls associated with partnering with cannabis companies, including:
1. Reputation Risk: Although public attitudes towards cannabis are changing, the drug remains federally illegal and carries social stigma in certain circles. Players who associate themselves with cannabis companies run the risk of being perceived as advocates for drug use, which could damage their reputation and impact future endorsement deals. It is crucial for players to review morality clauses in their existing contracts to ensure that any “illegal drug use” provisions are not overly broad so as to prohibit a relationship with a cannabis company.
2. Conflicts of Interest: Players investing in or partnering with cannabis companies may face conflicts of interest if their financial pursuits clash with the NBA’s policies or rules. For instance, the CBA prohibits players from holding an active, controlling interest in marijuana-producing companies (products above 0.3% THC). Therefore, if a player wants to invest in a typical state-licensed medical and/or adult-use marijuana company (above 0.3% THC), that interest must be passive and non-controlling. Similarly, players may endorse CBD products but will continue to be prohibited from endorsing products containing THC above 0.3%.
3. Legal Concerns: Despite the increasing legalization of cannabis across the United States, legal risks persist. Players and cannabis companies alike face potential legal repercussions, especially if players invest in companies operating in states where marijuana remains illegal. Additionally, cannabis companies may face legal challenges if they sell athlete-sponsored products in states with specific laws governing celebrity endorsements and marketing, as well as stringent regulations aimed at protecting children.
4. Regulatory Challenges: The cannabis industry is relatively new, heavily regulated and constantly changing, with intricate laws governing various aspects from cultivation to distribution. Players who partner with cannabis companies must be mindful of potential regulatory hurdles and ensure compliance. It is particularly important to note that certain states prohibit players from holding ownership interests in multiple cannabis companies.
5. Finding the right role players. Engaging in collaborations with cannabis companies without proper guidance or support could result in unforeseen challenges. Players should seek knowledgeable advisers to successfully navigate the complexities of entering the cannabis industry.
The new CBA is evidence that the NBA recognizes the immense potential of embracing the cannabis market. This policy change has been met with enthusiasm by numerous NBA players who see it as a crucial step towards destigmatizing marijuana use and seizing new opportunities. Players like Kevin Durant and Jaylen Brown have already expressed interest in forging partnerships with cannabis companies, and with the revised collective bargaining agreement in place, it is expected that more players will follow suit.
Vijay Choksi, Counsel, Fox Rothschild LLP, serves the commercial and regulatory needs of clients in the medical and adult-use cannabis industries.(https://www.foxrothschild.com/vijay-s-choksi)
Cameron Baker, Associate, Fox Rothschild LLP focuses his practice on entertainment and sports law, commercial litigation and family law. (https://www.foxrothschild.com/cameron-baker)
Eric C. Bielefeldt, Associate with Fox Rothschild LLP, is a member of the firm’s corporate department and represents and advises clients in a broad range of corporate matters. (https://www.foxrothschild.com/eric-c-bielefeldt)
